Aug. 26, 2009
Communications and Marketing
Dr. Rajeev Dhawan, Director
Economic Forecasting Center
Robinson College of Business
ATLANTA - The economy's free fall has come to an end but the forces that have traditionally firmed-up job recovery are still missing, said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University's Robinson College of Business.
In his Forecast for the Nation, released today, Dhawan said that while the consensus among most Wall Street forecasters is that the recession has ended, two of the major drivers of current and future economic growth are still absent. According to Dhawan, "tech investment growth, a critical predictor of job growth, is still non-existent and new construction activity is running at a shadow of its former self.
"The fallout (from the recession) is far from over when viewed through the prism of job loss rates and income growth," said Dhawan, who noted that "investment by the corporate sector, especially in the arena of high-tech equipment and software, has fallen at an annual rate of 10 percent in the past 18 months and the required corporate revenue growth to jump-start activity is still missing." He also said that tech investment numbers must "climb into substantial positive territory to enable any job additions in the next 12 months."
A further impediment to future job growth, said Dhawan, is the "reluctance of CEOs to convince their boards to undertake risky ventures while revenue growth is negative."
Although he remains cautious, the Georgia State forecaster said that "credit markets are beginning to thaw and that is a good sign." Dhawan also listed the lessening of unemployment insurance claims, increases in consumer confidence and the bottoming out of exports as other positive markers.
Ultimately, Dhawan foresees subpar real GDP growth throughout 2010 with a "grudging return to 2.0 percent growth in 2011."
Highlights from the Economic Forecasting Center's National Report
Georgia and Atlanta - No New Construction Signals No Real Recovery Until 2011
Still reeling from the effects of a construction boom gone bust, Georgia will have to wait until 2011 before real recovery in the form of job growth gains a foothold.
According to Georgia State Economic Forecasting Center Director Rajeev Dhawan in his Forecast of Georgia and Atlanta, "Job losses in Georgia during this severe recession have totaled over 250,000, or almost 6.1 percent of the employment base - a more severe drop than that experienced nationally." Dhawan says the severity of the recession is linked not only to corporate job losses from last fall's financial crisis but also from the severe drop in residential building activity that has happened in the last 18 months.
"Going forward," said Dhawan, "the Atlanta metro area will lack construction opportunities of sufficient number and size as the state's banking industry takes its time to recover." He noted that Georgia experienced 16 bank failures (almost 25 percent of the total national closings) and that more are expected. This dries up the source for construction financing especially residential. In addition, with the current freeze in the commercial mortgage-backed securities market, many previously announced commercial projects in the Atlanta area, the hub of the state's construction activity, have been scrapped due to lack of funding. All that remains are some small projects and public works but, according to Dhawan, "the area will need multitudes of those to make up for one $200 million condo/office project." He also noted that "indigenous growth from corporations headquartered here will be key to overall growth in the future."
Georgia also continues to suffer from curtailed government spending at the state and local levels as a result of severely reduced tax revenues, especially sales tax proceeds that are still dropping due to the consumer pull back in spending on big-ticket items, and from reduced tourism and convention business.
With the negative effects of reduced construction activity and state and local spending, Dhawan predicts that the unemployment rate will rise from the current 10.1 percent level to 11.0 percent by mid-2010. He says "the recovery will begin in 2011 when repair work by the Treasury finally pays dividends by improving credit flow to small and medium enterprises. Also the federal fiscal spending multiplier will kick in by then."
However, warns Dhawan, even in 2011, the recovery will remain "tepid."
Highlights from the Economic Forecasting Center's Local Report